The Big Picture: Saving Lexus

Toyota's Luxury Brand Needs an Overhaul

Huh? Save Lexus? Toyota shook the luxury-car establishment to its core with the launch of the Lexus LS 400 in 1989. Unbelievably refined and beautifully built, the LS 400 caused utter panic in Stuttgart, forcing Mercedes-Benz to make costly last-minute revisions to its W140 S-Class in an effort to match it. Along with Honda's NSX, which caused an equal furor in Maranello, the LS 400 signaled that even Europe's grandest automakers had reason to fear the Japanese.Two decades later, you could argue Lexus has been a failure. Outside the U.S. and Japan, Lexus is a bit player in the luxury sector. Mercedes, BMW, and Audi all sold at least 30 times more vehicles than Lexus in Europe last year. Lexus has no big coupes or convertibles, no small crossovers, no sports cars (apart from the hugely expensive and largely irrelevant LFA), no wagons, just one sport sedan, and--crucially for Europe--no V-6 diesel engine.

And the U.S. sales numbers--Lexus last year outsold both BMW and Mercedes-Benz--flatter to deceive: Lexus is overwhelmingly reliant on the RX crossover, which accounts for 45 percent of total sales and retails for between $39,000 and $47,000. By contrast, Mercedes-Benz's best-seller is the E-Class, which accounts for 26 percent of sales and retails for between $48,000 and $87,000. Mercedes sells roughly twice as many vehicles here with a base price of more than $50,000.So what went wrong?"Lexus was born out of a unique situation," says Toyota CEO Akio Toyoda. "A single company giving birth to two brands is unique. We wanted a car to compete with the S-Class. However, back then we did not regard Lexus as a brand, but as a distribution channel." And that's a key insight. It's why Lexus vehicles were sold for many years in Japan as Toyotas, and why Lexus did not have brand or product champions at a senior level within the Toyota organization in Nagoya.

Many of the Toyota managers who cycled through Lexus were short-termers who barely understood the concept of a luxury brand. Turning the quotidian Camry into the Lexus ES 250 was as bad an idea as it was when GM created the Cadillac Cimarron from the Chevy Cavalier, but it happened because Toyota belatedly realized Lexus dealers needed an entry-level car. The Camry's reliability and quality --and Lexus' dealership experience--meant Toyota got away with the ES 250. But it also reinforced the notion that Toyota and Lexus cars could basically be one and the same.To fix Lexus, Akio Toyoda has created a stand-alone Lexus division responsible for the design, development, and marketing of Lexus vehicles worldwide. Its senior managers all report directly to him, an organizational structure that is unique within Toyota.Toyoda takes the role of being Lexus' leader seriously. "I am passionate about the future of Lexus, and wanted to be personally involved. I want Lexus to be the car the most sophisticated drivers want to drive, and once they've driven one they never want to drive anything else." Yet, when asked what Lexus should stand for, his face clouds, and he pauses. "We need a clear message. That's one thing I have difficulty with: coming up with a clear definition."

The 2013 GS suggests Lexus cars will become sportier. Meanwhile, the V-6 engine is not particularly silky smooth, and the decision to retain the six-speed automatic rather than use a state-of-the-art eight-speed is unforgivable cheapskating.Akio, just spend some time in an original LS 400. Savor the utter refinement, the aston-ishing attention to detail, and the refusal to compromise. That's where the Lexus brand DNA is buried.

Excellent and very accurate article, Angus, and props to you for telling it like it is. When even the top dog at Toyota admits that "Lexus" was just a marketing channel and even today, nobody can really define it - well, that proves what many of us have known for years: Lexus has a loooong way to go before it will truly be considered a bona-fide luxury marque.

Excellent article. Toyota has lost sight of what made them great, and is instead bringing out mediocre products with cheaper quality than in the past. Like Toyota, Lexus needs to focus on what made them great.